Question:

Jack’s Packs manufactures backpacks made from micro fabrics. The cutting department prepares the
material for use by the backpack stitching department. The cutting department can cut enough material
to make 200 backpacks per day. The backpack stitching department produces 90 backpacks per day.
Annual demand for the product is 22,500 units. The company operates 250 days per year. Estimated
setup cost is Rs 60. Annual holding cost is Rs 6 per backpack.

(a) Calculate the economic production quantity for the cutting department.
(b) Calculate the total annual costs for the EPQ

Solution:
a)

√( )
2 DS
Q=
d
H 1−
p

√( )
2× 22,500× 60
Q=
90
6 1−
200

√( )
2× 22,500× 60
Q=
200−90
6
200

√ ()
2× 22,500× 60
Q=
110
6
200

Q=
√
2× 22,500× 60
3.3
Q=
√
2,700,000
3.3
Q=√ 818181.8181
Q=904.5∨905 Backpacks
b)

90
( 200
Inventory Maximum=905 1− )
200−90
Inventory Maximum=905 (
200 )
110
Inventory Maximum=905 (
200 )
=497.75∨498 backpacks
Maximum Inventory Level:
Tc= ( 22500
905
60 )+(
498
2 )
6 =Rs 2985.71